What is a Contract Race?
A contract race is where a seller agrees to have contracts with two or more potential buyers with the expected - but not necessary - result that they sell to the buyer who is ready to exchange contracts first.
The process isn't normal or straightforward and attracts substantial additional costs on the part of the seller along with regulatory restrictions. It is, however, a solution for a seller who has been frustrated by a buyer who has delayed in getting to exchange or has multiple offers for varying prices. The seller can benefit by finally selling, perhaps not at the highest price, but in the fastest possible time.
The SRA regulates contract races
Under the SRA Handbook, Code of Conduct, Outcomes 11.3 it states: "where you act for a seller of land, you inform all buyers immediately of the seller's intention to deal with more than one buyer;"
This means that the solicitor is duty-bound to inform all buyers that the seller is intending to enter into a contract race with multiple buyers. This will cause the buyer to choose whether they continue or return contracts; exiting from the race.
Why have a contract race?
If you're selling a much sought-after property, you're in a strong position and you're going to have to decide which offer to accept.
Although the prime factor will often be the highest price, there's going to be other considerations such as whether a particular buyer can proceed faster than others if they have a property to sell (which could cause delay in turn) and how they're going to fund their purchase (cash is going to be a much faster operation than buying with a mortgage).
Given the factors described and that you as a seller won't want to accept an offer only to find your chosen buyer can't proceed meaning you might even have to lose another buyer in the process and start all over again, one option is to speak to your lawyer about a Contract Race.
As a buyer, you'll simply be interested in the process if you're aspiring to buy the property involved but you must ensure you know all the parameters, explained below, the possibility of much greater outlay in legal fees and no guarantees of success.
It will certainly concentrate the mind when it comes to getting your 'ducks in a row', particularly if you're freely entering a race as a mortgage buyer.
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What’s involved in a contract race?
If you're considering carrying out a contract race, your lawyer explains the process to you and that it normally necessitates paying higher fees.
As with all conveyancing transactions, however, there's no guarantee that your buyer will proceed; at the very least until contracts have been exchanged which carries with it the sanction of the 10% deposit loss on the buyer.
In terms of contract race obligations, your property lawyer draws up a contract pack for each interested buying party and every one of them is informed that they're in a race in which they have to agree whether or not they wish to participate in.
Did you know?
It’s not a requirement that all contracts are the same, and each buyer will only see their contract and any special conditions.
As a general rule, the first party which exchanges contracts gets to secure the property.
How does it feel from a buyer's perspective?
A buyer can find the situation both stressful and high-pressure. They may well have to pay additional fees given the urgency of the matter.
A mortgage buyer additionally has the stress of the parallel mortgage application process, coordinating required searches as quickly as possible and having everything ready to exchange as quickly as possible.
Any buyer, whether cash or via a mortgage, may well wish to book a home buyers survey additionally and a cautious cash buyer might also wish to book searches in the same way.
Cash buyers - greater scope but greater hazard
It should be clear from the above that if a cash buyer is facing off against a mortgage buyer, they have the advantage of speed because they are legally able to cut corners over searches for example.
That said, the obvious Faustian flipside is that in cutting these corners, that cash buyer risks not carrying out all the worthwhile checks and on the property in question and ensuring as much as possible that the property is worth the money they are prepared to spend on it.
So there are no guarantees ultimately?
No - there are always going to be failures in contract races and the seller holds all the cards.
If you subsequently decide not to proceed or wish to accept a higher offer from an entirely new buyer, your lawyer must first withdraw the contracts from those involved in the original race before submitting any new contracts to the new buyer.
Unfortunately, if you were one of the initial buyers involved in the race, you do not have any recourse and may find yourself with an expensive legal bill for works undertaken.
How can you avoid a contract race?
As a buyer, it's entirely understandable if you want to avoid the situation entirely. Given that the main goal of any property seller is securing a sale, you should do everything in your power, therefore, to appear as the most matched and reliable buyer.
The simple answer is to do everything faster than the other interested buyer(s). Read our top 5 tips for fast conveyancing to help you determine what needs to be done.
How you can do this:
- Prove you’re organised by having all the necessary funds in place.
- Have an experienced solicitor instructed, on standby and ready to proceed – share their details with the seller.
- Be open and communicative - always respond quickly to questions - don’t hold back any information.
- Show clear interest in the property – have a trusted surveyor on standby, ask plenty of questions, and make it clear that this is your dream home (if indeed it is!).
- Try and build up a rapport with the seller - a good relationship should help things go in your favour.
- Understand the property market as much as possible. The more informed you are, the better your chances of the seller understanding you’re serious about the sale.
- If you’re a first-time buyer, use this to your advantage by emphasising that you’re in a chain-free position.
- Within reason, offer a level of flexibility. If the seller feels pushed and overly controlled, it might make them more likely to stray to other buyers.
- Further convey your commitment to this purchase by being decisive.
What is the best strategy to win?
As we've emphasised, there's no sure-fire way to win a race but you'll always do best to engage an experienced solicitor who is familiar with and has won a race before. They'll instruct and guide you through what may be a nail-biting experience from time to time.
Also, it’s advisable to already have a mortgage agreed in principle from a reliable mortgage lender if you're a mortgage buyer. This can help set things in motion much quicker, proving to the seller you’re financially committed to buying their house.
Above all though and before going 'all out', you want to decide whether it is your dream home. You could find yourself out-of-pocket after all and with no redress.
Check out the area you're looking to buy in: the best house on the worst street can carry with it its problems for example and if schools are a factor, there's research to do here.
- Expert panel of conveyancing solicitors, with local knowledge.
- Your transaction is protected by our No Sale, No Fee policy. Terms apply.
- Fixed fee conveyancing.
- We are on 99% of mortgage lender panels.
- We can solve any property challenge.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
